Input Tax Credit (itc) on Motor Vehicles In GST

[Dinesh Kumar]

1. Introduction

Seamless flow of input tax credit was the core purpose of the GST law after subsuming all the indirect taxes. Here, the admissibility of credit on motor vehicles has emerged as the burning issue and still in infant stage there is diversity in the provision of the law and the decision being given by Authority for Advance Rulings.

2. Legal Provisions

The relevant provision related to the issue under consideration is as under

 "Section 17 - Apportionment of credit and blocked credits.

(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, the input tax credit shall not be Unavailable in respect of the following, namely:

[(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely

1. further supply of such motor vehicles; or

2. transportation of passengers; or

3. imparting training on driving such motor vehicles 

(aa) vessels and aircraft, except when they are used -

1. for making the following taxable supplies, namely

1. a further supply of such vessels or aircraft; or

2. transportation of passengers; or

3. imparting training on navigating such vessels; or

4. imparting training on flying such aircraft;

2. for the transportation of goods;

   (ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa):

Provided that the input tax credit in respect of such services shall be available --

  (i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;

  (ii) where received by a taxable person engaged -

• in the manufacture of such motor vehicles, vessels or aircraft; or

• in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;"

3. Facts of the case

The assessee was engaged in supplying cabs on rental basis for transportation of passengers. It was further submitted that as people take the car on rent for the transportation of 

passengers, therefore, the services though claimed as "rent-a-cab" services but it is closely and essentially associated with transportation of passengers and hence, on reading of the provision as cited above the credit of tax paid on the purchase of motor vehicles is admissible to it

4. Discussion

While discussing the matter, it was stated by the Authority for Advance Rulings that the GST Act has been amended with effect from 1-2- 2019 and before amendment the provisions of section 17(5)(b)(iii) of the Act did not allow credit of GST paid on inputs for supply of rent-a-cab service, except under certain specific conditions that are not applicable in the this case. It ruled out credit of input tax paid on the purchase of motor vehicles used for supply of rent-a-cab service if the transaction was effected before 1-2-2019

It further stated that the amended provisions of section 17(5)(b)(iii) of the GST Act do not contain a reference to the rent-a-cab service. However, post-amendment, input tax credit shall not be available in respect of supply of the service of renting or hiring of motor vehicles in terms of section 17(5)(b)(i) of the GST Act, unless the inward and the outward supplies are of the same category, standalone or as an element of a taxable composite or mixed supply. Further, section 17(5)(a) of the Act provides that input tax credit shall not be available on inward supply of motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely - 

1. a further supply of such motor vehicles; or

2. transportation of passengers: or

3. imparting training on driving such motor vehicles.

It was further discussed that "rent-a-cab" is not defined in the GST Act and therefore, the nature of services has to be identified from the invoices and the related facts. The assessee provides cab rental service to various institutions and in no case, such services provided to institutions can fall under "passenger transportation services". From the facts, it was further’ inferred that the service receiver has to pay the assessee a certain amount per month as consideration, irrespective of what distance the cab travels in a particular month. The additional amount has to be paid if the cab is retained for extra hours or requisitioned on holidays. To cover the cost of fuel, the distance traveled needs to be brought into play, but only if it crosses a certain threshold.

It is, therefore, clear from the above discussion that the nature of the service the assessee provides is classifiable under SAC 9966 as renting of a motor vehicle.

5. Conclusion

In view of the facts and the legal provisions stated above, it was held by the Authority for Advance Rulings that the credit of GST paid on the purchase of motor vehicles or other inputs for the supply of the "rent-a- cab" service is not admissible.

6. Author's views

With due respect, the author of this article differs with the decision passed by the Authority for Advance Rulings in the above-mentioned case. The author wishes to throw light on the provision mentioned in section 17(5)(a)(A) of the CGST Act, 2017, wherein it was said that the credit of tax paid on motor vehicles is admissible where it is used for further supply of such motor vehicle. As the words highlight, it is very clear that the credit of tax paid on a motor vehicle is admissible if the same is used in further supply. It is worthwhile to note that the term "supply" has its significance and from reading the meaning of supply as given to it in section 7 of the CGST Act, 2017, it is very widely interpreted to include all sorts of supply, service or sale including renting, leasing, etc.

Thus, where "rent-a-cab" is included in the meaning of the term "supply", and renting of motor vehicles is the further supply of such motor vehicles, hence, the conditions mentioned in section 17 are fulfilled in favour of admissibility of input tax credit to the assessee of tax paid on such motor vehicles. Hence, the above decision needs reconsideration in light of the provisions cited above.

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Discussions to this article

[Ganeshan Kalyani]

Sir, the term 'further supply of same goods' differs from mere 'supply'. Supply can of service with the means of motor vehicle. But the definition states the supply of motor vehicle as such. Here, the case is not such of goods as such. Hence, your view may invite Show Cause Notice.

I welcome the views of experts colleague .

[Pavan Mahulkar]

Narsingh Transport, Madhya Pradesh Advance Ruling, dt.18.02.2019: = 2019 (4) TMI 304 - AUTHORITY FOR ADVANCE RULING, MADHYA PRADESH

Issue: Whether ITC is available on vehicles which are further supplied to customers on lease. (Section 17 (5) (a) of the CGST Act)

Held: The applicant is providing GTA services and is charging GST on outward supply of GTA service. The applicant purchased car and the same have been provided to various companies on lease rent. Contention is that the cars are purchased in furtherance of business. After the amendment of 2018, Section 17(5)(a) reads as follows:-

(a) motor vehicles and other conveyances except when they are used––

(i) for making the following taxable supplies, namely :––

(A) further supply of such vehicles or conveyances ; or

(B) transportation of passengers ; or

(C) imparting training on driving, flying, navigating such vehicles or conveyances ;

(ii) for transportation of goods ;

The applicant is providing cars on lease rent to their customers for carrying passengers and are not covered by clause (B) & (C) both before and after amendment. The applicant is supplying cars on lease against the monthly monetary consideration and in the course of applicant’s business in a taxable territory. The outward supply is also taxable in nature. Therefore, the activity carried out by the applicant is in the nature of taxable supply.

The question is whether giving cars on lease amounts to further supply of such vehicles. The term ‘further supply’ is not defined AAR Discussed Further Supply as...

"Applicant satisfies the exception situation provided in subsection 5(a) (i) (A) before the amendment and sub-section 5(a)(A) after the amendment to make it eligible for availment of Input Tax Credit on Motor vehicle i.e. cars, purchased and then provided to their customers under Lease Rent Agreement? The above mentioned sub section mentions about making of “further supply” of such vehicles or conveyance and hence the deciding factor would be the term “further supply”. We observe that the term “further supply” has not been defined in the Act, therefore one has to go by definition of “supply” which is the very plinth of GST law. The term ‘further’ prefixed to ‘supply’ is merely in the form of adverb and does not differentiate it from ‘Supply’ by any stretch of imagination."

and held leasing of car covered under further supply of car. Therefore, the applicant is entitled for ITC.

[vijay kumar]

Amended provision says - Further supply of such motor vehicles.

Supply shall be interpreted as per its definition u/s 7 of CGST Act, 2017.

Such motor vehicles will indicate a one-to-one correlation. Accordingly, unless there is further supply of SUCH motor vehicles, ITC is not eligible.

Cases where ITC is not eligible would be - (i) self-use (ii) demo cars etc. in which cases supply definition is not satisfied since there is no sale, barter, exchange etc for a consideration for furtherance of business.

ITC would be eligible in the case of rent-a-cab, lease etc since they are supplies of such motor vehicles.